The assessment for this module consists of the two questions shown below you must answer BOTH questions. The total word count for this assessment is 2500 words thus question 1 should be 1500 – 1700 words in length and question 2 should be 800 to 1000 words. The answer should make appropriate use of both accurate Harvard referencing and illustrative examples to support the analyses.
1. Many entrepreneurial SME’s do not follow a planned, strategic approach to the issue of internationalisation. Most do so by means of an evolutionary strategy based on a combination of methods and options. Using relevant illustrative example for each approach, review the various options that can be used, the advantages and disadvantages these options and how the probability of success can be maximised. (60 marks)
2. The OECD suggests that SME’s have a tendency to move to markets that are geographically or psychologically close to them. Again, using relevant illustrative example for each approach, address the following two questions
a) What are the advantages of this approach? (25 marks)
b) What are challenges that are presented by moving to markets that are geographically or psychologically distant and are these more of an issue for the service or the manufacturing sector? (15 marks)
1: Suggested Reading List
Entrepreneurship for everyone: a student textbook – Robert B. Mellor, G. R. Coulton c2009
Strategic entrepreneurship – Philip A. Wickham 2006
Entrepreneurship in emerging regions around the world: theory, evidence, and implications – Phillip Hin Choi Phan, Sankaran Venkataraman, S. Ramakrishna Velamuri 2008
International entrepreneurship in small and medium size enterprises: orientation, environment and strategy – Etemad, Hamid 2004
Intrapreneuring in action: a handbook for business innovation – Pinchot, Gifford 1999
Knowledge matters: technology, innovation and entrepreneurship in innovation networks and knowledge clusters – Elias G. Carayannis, Piero Formica 2008
Competitive advantage in SMEs: organising for innovation and change – Oswald Jones, Fiona Tilley c2003
Enterprise: Entrepreneurship and innovation: concepts, contexts and commercialization – Lowe, Robin, Marriott, Sue 2006
International business: strategy and the multinational company – Cullen, John B., Parboteeah, Praveen 2010
Bridging the culture gap: a practical guide to international business communication – Penny CarteÌ, Chris Fox 2008
International management: culture and beyond – Richard Mead, Tim G. Andrews 2009
2: Unit 1: Principles and Concepts of Entrepreneurship
The study of entrepreneurship is not a new phenomenon; Cantillion (circa 1700) and Mill (1848) published definitions of an entrepreneur, with the central theme in both being related to the bearing of risk. Schumpeter (1934) is one of the often quoted more modern commentators on this subject. Schumpeter’s perspective reflected on the entrepreneurs as an individual, who created new means of production; this was a function that was fundamental to economic development. This theme of economic development, or more accurately “re-alignment”, was further developed by Aghion & Howitt (1992) when they further examined the process of “creative destruction” and the analysis and importance of entrepreneurship continues to this day.
It is difficult to watch to watch the news on television or read a newspaper without some commentary on the state of the world economy and the growth and importance of small business within that (assuming that SMEs are (rightly or wrongly) synonymous with entrepreneurial activity)
This has led to a rise of the volume of research on the entrepreneurs (or small business owners) who start and run these SMEs. Consequently the number of competing definitions and models of entrepreneurs and entrepreneurial activity have increased. The confusion caused by competing models and definitions is compounded by the fact that the study of entrepreneurship draws from many diverse sources such as sociology, psychology, economics and culture.
Howorth, Tempest and Coupland (2005) summarise the current situation “Despite a large number of studies the definition of entrepreneurship and/or an entrepreneur continues to generate debate.” (Low, 2001). Some search for an overarching theory of entrepreneurship (Bull and Willard, 1993), whereas others argue that we cannot expect and do not need one theory of entrepreneurship, but instead should build up a body of theories (Gartner, 2001)”. Beaver and Jennings (2005) concur that defining entrepreneurship is problematic, “Entrepreneurship has been the subject of a great deal of important research but as yet and probably never, there is no unified, generally accepted definition or model entrepreneurial development and activity”. Thus it could be argued that rather than attempt to create the definitive definition of an entrepreneur, we will simply try to highlight areas of commonality across the competing models and use these as benchmarks for identifying entrepreneurial activity.
A substantial part of the reason for there being no definitive definition of entrepreneurship, lies in the study of the subject as this is approached, as previously stated, from four perspectives: economic, social, psychological or cultural. The economic perspective considers issues such as how the entrepreneur relates to risk taking, innovation (Schumpeter), decision-making and exploiting gaps in the market. The social perspective considers personal attributes and whether these are inherent and could be taught, additionally it looks for specific indicators that could be used to identify group who display entrepreneurial characteristics. The psychological perspective looks to define an entrepreneur in terms of a psychological profile. The cultural perspective is related to the work of Hofstede, and considers entrepreneurialism as a culture phenomenon and how national (if indeed there is a phenomenon such as national culture-although that is a debate for another time!) and local culture can influence and nurture entrepreneurialism.
When these four perspectives are considered, it becomes apparent that some perspectives are examining the entrepreneur and some what the entrepreneur does, so therefore may not be addressing the same question. Howorth, Tempest and Coupland (2005) highlight this confusion “In assessing the many definition of an entrepreneur it is clear that there if often difficulty separating characteristics from of the entrepreneur from actions, i.e. what they are from what they do.”
2.2: Further Resources
In every unit you will be given a reading list; these will be extensive, however there is no need to read every chapter and article referenced in-depth. I would recommend starting with key texts, which are: Wickam, Lowe and Marriott, and Onkvist and Shaw. If you have time, read the additional material, though any journal articles posted in bold are recommended. The journal articles can be downloaded in PDF form and kept for future reference.
Bjerke, B. (2007) Understanding Entrepreneurship, [On-line], Edward Elgar Publishing.
Chapters 2, 3, 4 and 8
Wickham, P.A. (2006) Strategic Entrepreneurship 4th edition, [On-line], Financial Times Prentice Hall.
Chapters 2, 3 and 4
Lowe, Robin; Marriott, Sue, (2006) Enterprise: Entrepreneurship and Innovation : Concepts, Contexts and Commercialisation 1st ed.[On-Line] Taylor and Francis.
Chapters 1 and 2
(2011),”What is an entrepreneur?: Understanding who they are and how they can benefit”, Strategic Direction, Vol. 27 Iss: 6 pp. 22 – 25.
Melissa Grafton, (2011),”Growing a business and becoming more entrepreneurial: the five traits of success”, Strategic Direction, Vol. 27 Iss: 6 pp. 4 – 7.
Thomas M. Begley, David P. Boyd, Psychological characteristics associated with performance in entrepreneurial firms and smaller businesses, Journal of Business Venturing, Volume 2, Issue 1, Winter 1987, Pages 79-93, ISSN 0883-9026, 10.1016/0883-9026(87)90020-6.
Lena Lee, Poh Kam Wong, Maw Der Foo, Aegean Leung, Entrepreneurial intentions: The influence of organisational and individual factors, Journal of Business Venturing, Volume 26, Issue 1, January 2011, Pages 124-136, ISSN 0883-9026, 10.1016/j.jbusvent.2009.04.003.
Allen, I. Elaine, and Nan S. Langowitz. “Small business leadership: does being the founder matter?” Journal of Small Business and Entrepreneurship 23.1 (2010): 53+.
Carsrud, A, & Brannback, M 2011, ‘Entrepreneurial Motivations: What Do We Still Need to Know?’, Journal Of Small Business Management, 49, 1, pp. 9-26, Business Source Premier, EBSCOhost.
Read Chapter 4 of SME’s, Entrepreneurship and Innovation
The following websites are a general resource and will be a useful source of information for all of the units in the module:
3: Unit 2: Principles and Concepts of International Entrepreneurship
Whilst the internationalisation of Multi National Enterprise ( MNEs) has been studied extensively, the situation with respect to SME internationalisation is significantly different, as Covellio and Martin (1999) highlight, “With regard to firm size, however, the general patterns in the extant literature suggest that the primary interest has been in the large firm activities”.
However the on-going expansion of the SME sector, is generating more work in this area. Ambler and Styles (1999) suggested why some SMEs expand (or attempt to expand) internationally, “Reasons for considering entry into a foreign market include: the desire to replicate domestic success elsewhere, a home market that is too small for a product and poor performance at home”. Lloyd Reason and Mughan (2002) suggest additional reasons for SMEs attempting internationalisation, even if there are apparent internal and external barriers, “Domestic markets are no longer the preserve of indigenous companies since these are under attack from overseas competitors. SMEs are not immune from this impact on the internationalisation of the market place and are in turn faced with the need for a strategic response.”
Whilst Ambler and Styles, and Lloyd Reason and Mughan highlight reasons for SMEs going international, they don’t expand on the way in which SMEs go international. A number of models have been proposed to answer the “how?” question, among these are the business-strategy, the Uppsala model (which is explained in the second link of the further resources section) the broadly similar POM model and the network approach model. The business-strategy approach could be looked upon as a response to (relative) failure in the home market, the Uppsala is close to the stages model and the network approach focuses on the relationships between companies (though at the SME level, it could be argued this is really between individuals) however, even here there is conflict as Westhead et al (2002) suggest, “A number of studies have questioned the wider applicability of stage model theories (McDougall et al, 1994; Leonidiou and Katsikeas, 1996) because they have detected that some firms, particularly knowledge and technology firms, are “born global firms” (Knight and Cavusgil 1996)”.
This “born global” scenario is significantly different than the process outlined for MNEs, indeed there seems to be some contradiction that a firm with scarce resources can overcome both internal and external barriers and go international quicker than a much larger more resource rich MNE. Developing an almost immediate international business, is in stark contrast to the stages model and Root’s “3 to 5 year timescale”. Many reasons are proposed for the “born global” scenario; the Internet is an obvious vehicle that has allowed easier internationalisation, but issues such as serving and indeed, QUICKLY understanding the nuances of niche markets and thus having to service this market in several countries to be competitive is another.
Environmental factors within certain sectors can also influence internationalisation, it has been suggested that New Technology Business Firm’s (NTBF’s (Keogh and Evans, (1999)) thrive on an international level due to the high pace of change, focus on research and development and involvement in industrial networks, usually through the owner-managers. It would be wrong to assume that the “born global” phenomenon is attributable to all SMEs and indeed it may only be applicable to be very specific sectors.
3.2: Further Resources
Wickham, P.A. (2006) Strategic Entrepreneurship 4th edition, Financial Times Prentice Hall Chapter 7 [UDOL library via dawsonera -On-line],
Etemad, H (2004), International Entrepreneurship In Small And Medium Size Enterprises : Orientation, Environment And Strategy, Edward Elgar Chapters 1 and 8 [UDOL library via dawsonera -On-line],
Lowe, Robin; Marriott, Sue, (2006) Enterprise: Entrepreneurship and Innovation: Concepts, Contexts and Commercialisation 1st ed. Taylor and Francis Chapter 6 [UDOL library via dawsonera -On-line],
Svante Andersson, (2011),”International entrepreneurship, born globals and the theory of effectuation”, Journal of Small Business and Enterprise Development, Vol. 18 Iss: 3 pp. 627 – 643
Shaker A. Zahra, William D. Schulte, (1994),”INTERNATIONAL ENTREPRENEURSHIP: BEYOND MYTH AND FOLKLORE”, International Journal of Commerce and Management, Vol. 4 Iss: 1 pp. 85 – 95
Jeryl Whitelock, (2002),”Theories of internationalisation and their impact on market entry”, International Marketing Review, Vol. 19 Iss: 4 pp. 342 – 347
Jan Johanson, Jan-Erik Vahlne, (1990),”The Mechanism of Internationalisation”, International Marketing Review, Vol. 7 Iss: 4
Adam J. Koch, (2001),”Factors influencing market and entry mode selection: developing the MEMS model”, Marketing Intelligence & Planning, Vol. 19 Iss: 5 pp. 351 – 361
J. Augusto Felicio, Vitor R. Caldeirinha and Ricardo Rodrigues (2012) “Global mindset and the internationalisation of small firms: The importance of the characteristics of entrepreneurs’,
International Entrepreneurship and Management Journal, Vol 8 Iss: 4 pp. 467 -485
Stephen Young, Pavlos Dimitratos, Léo-Paul Dana, (2003) “International Entrepreneurship Research: What Scope for International Business Theories?” Journal of International Entrepreneurship, Volume 1, Issue 1, pp 31-42
Alex Rialp, Josep Rialp, David Urbano, Yancy Vaillant,(2005) “The Born-Global Phenomenon: A Comparative Case Study Research” Journal of International Entrepreneurship, Volume 3, Issue 2, pp 133-171 (This is a long article so just read the literature review and the discussion sections.)
4: Unit 3: Entrepreneurial Firms and Growth
Growth in business is seen almost a pre-requisite, as Johnson and Scholes (1993) highlight, “Growth in not optional in many markets. If an organisation chooses to grow more slowly than the competition, it should expect the competitors to gain cost advantage in the longer term – through experience”. Thus the pursuit of growth is linked not just to higher sales, but to lower costs and thus overall competitiveness. Johnson and Scholes cite competitive forces as a driver of growth, however, both employees and shareholders also expect growth.
Literature on growth with references to shareholders, vertical integration and unrelated diversification, is arguably focussed on the MNE sector and it is thus reasonable to pose the question: “Does SME growth follow the same patterns as MNE growth?”
Given the growing importance of the SME sector to the economy of many countries, growth is one area of SMEs that has been studied extensively as Smallbone and Wyer (1994) highlight, “There has probably been more written about small-business growth in recent years than any other aspect of the development or management of small firms. One of the reasons for this, is the contribution of growing firms to economic development and employment generation”. On examining literature on SME growth, there is one difference that is immediately identifiable between MNEs and SMEs and that is the vast majority of SMEs never grow beyond their small status, i.e. they grow to a certain size (still within the SME categorisation) and then this growth levels off and the firm is sustained at that level. Based on Johnson and Scholes, and Karnani, this no growth scenario would be a recipe for disaster and failure, but this appears not to be the case in the SME sector.
However, the SME who grow and the route that these firms have followed to grow is of interest. Gibb and Davies (1991) completed a major literature review on the subject of SME growth and from this review they suggested four alternative approaches the SME usually follow. These approaches are outlined below:
• Organisational development.
• Business management.
• Sectoral and broader market led.
• Personality dominated.
It could be argued that approaches one to three, have their foundations in MNE theory, the organisational development approach, simply the life cycle theory, as highlighted by Yewin and Koza above. Authors such as Greiner (1972) and Churchill and Lewis (1983) have attempted to develop the life cycle model for SME further, by proposing additional stages to reflect firm formation. However, this approach veers towards being too descriptive; with little analysis of how the transition from stage to stage occurs. It could be argued that it is why a firm is at a position in its life cycle that is of interest, as exactly where it is in its life cycle. The business management approach could be viewed as “classical” theory, based on Ansoff and covering the five MNE growth routes highlighted above. There is probably some relevance in this approach to describing SME growth, as though relatively small SMEs do grow by the “classical” routes, however, growth is probably not driven by either the market or by shareholders.
Gibb and Davies included the sectoral approach in their summary, but this is considered by many authors to be very problematic, as this approach is based on projecting the future growth of a firm from its past performance.
The final approach highlighted, the personality dominated, focuses on the attitude of the owner-manager to growth. The situation of the limited growth in general, in the SME sector phenomena of the “no growth’ owner-manager, has been reviewed earlier in this section. However, there are firms that grow out with the limited growth seen in the sector in general, and why these firms grow is of interest. Storey (1994) identified three factors that influence SME growth characteristics of the entrepreneur (owner-manager), characteristics of the firm and management strategies. The external environment is another factor that needs to be considered, as this can be both a barrier to growth for a firm seeking growth, but it can assist growth in different circumstances.
4.2: Further Resources
There is a wealth of reading and academic video film clips available on this topic and those listed below are simply a selection.
Robert Mellor with Gary Coulton et a, (2009) Entrepreneurship for everyone: a student textbook [UDOL library via dawsonera -On-line] Sage Chapter 4
Lowe, Robin; Marriott, Sue, (2006) Enterprise: Entrepreneurship and Innovation : Concepts, Contexts and Commercialisation 1st ed [UDOL library via dawsonera -On-line] Taylor and Francis Chapter 12
Reijonen, H, Laukkanen, T, Komppula, R, & Tuominen, S 2012, ‘Are Growing SMEs More Market-Oriented and Brand-Oriented?’, Journal Of Small Business Management, 50, 4, pp. 699-716
Morrison, A, Breen, J, & Ali, S 2003, ‘Small Business Growth: Intention, Ability, and Opportunity’, Journal Of Small Business Management, 41, 4, pp. 417-425
Niina Nummela, Kaisu Puumalainen, Sami Saarenketo, (2005) “International Growth Orientation of Knowledge-Intensive SMES”, Journal of International Entrepreneurship Volume 3, Issue 1, pp 5-18
Growth in times of austerity – YouTube
Challenges of growth and success – YouTube
5: Unit 4: Immediate Startup or Grow in Stages
Small business or individuals have always had opportunity for international trade and one only has to look at the ancient lands and trade practices of the Sumerians, Romans, Indians, Ancient Greeks etc. all through history to the Victorian era and beyond to appreciate that trade has always taken place. However, it could be argued that it is only recently, with the advent of new technologies, that truly international trade has become available to the individual or small business.
The ever improving communication links now allow for instant transfer of knowledge and (perhaps futuristically) with the growth in 3D printers, instant delivery of goods. “Technology – in particular the Internet – has therefore been a key element in the trend to globalisation. Technology and Globalisation have become mutually reinforcing with the global market also enhancing the profitability of the new technologies” (Aggarwal, 1999).
This growth in technology has allowed what were perhaps deemed to be niche markets to grow and become economically viable when viewed as a global commodity. Sourcing of parts (providing opportunity for suppliers), specialist equipment and growth in service opportunities, to name but a few, are all providing opportunities for growth for small business.
It is also worth considering whether there are “push” or “pull” reasons for entering international markets. Some small business may simply enter the market due to over capacity or stiff competition in their home market. It may also be the changing face of the market in which they provide goods or services. As an example, accounting, banking or finance firms seeing a change in their client groups who themselves are becoming more international and are, in turn, demanding a similar outlook/service from their accountant, bank etc.
5.1: The International Start Up
So far, we have concentrated on the existing business moving into international markets. However, some businesses are specifically set up with a view to becoming an international “player” almost immediately. Alfred Weber was arguably the first economist to propose that a business would choose its location based on lowest cost. His basic argument was that a firm would choose a location based on the cheapest transport and labour costs. Of course the transport would have to factor in the costs of transport to ultimate destination rather than simply within the country of origin.
The increasing numbers of new venture international start-ups generally do so because they derive some form of significant competitive advantage from doing so (Oviatt & McDougall, 1994) and will always initiate an international business strategy as their starting point. Typically, they may have resources and production spread across a number of countries or geographic locations and will make use of international sourcing for their own raw materials. This may include utilising existing networks which the owners have, for example, gained in previous employment or investigating and setting up completely new networks solely for the purpose of their new venture.
Johnson (2004) mentions a number of reasons and factors which influenced the decision to internationalise almost immediately. Amongst those were internal factors such as vision of the founders, international experience of the founders, avoidance of domestic inertia etc. External factors such as the international nature of the industry, economies of scale, borderless product are also amongst a number which are analysed. Finally, facilitating factors which Johnson suggests include the advances in international communication, advances in international transport and advances in process technology.
You can read Johnson’s thoughts in full by accessing the journal – Johnson, Jeffrey E. (2004). “Factors Influencing the Early Internationalization of High Technology Start-ups: US and UK Evidence,” Journal of International Entrepreneurship, 2 (1), pp.139-154.
5.2: The Stage Model of Internationalisation
The stage model is, as the name implies, a more gradual process. It is argued that small firms will progress their international development through specific stages of export development. Vernon (1996) proposes a (relatively basic) model where the process of international development is through a version of product life cycle. Starting with domestic product development, this is followed by exporting overseas, increasing in quantity as demand grows. The final stage is moving/transferring/creating overseas production as domestic demand falls and international demand grows. This stage is often coupled with low cost production opportunities internationally although not necessarily in the country which provides the sales market.
Dicken (1998) also envisaged a sequential process, starting (again) in terms of a domestic market and moving into overseas production. However, as shown in the figure below, he also introduces a number of other variables from the (more) basic model of Vernon such as overseas agents, purchase of overseas firms etc.
Source: Global shift, mapping the changing contours of the world economy. Peter Dicken. The Guilford press, London, P118
The most in depth study of the process was by Johanson & Vahlne (1977) who examined the possibilities for internationalisation beyond that of simple export. Their internationalisation process model was published in 1977 after they had worked with Finn Wiedersheim-Paul at the Uppsala University (hence the name) beginning in the 1960s. Their theory revolved around the premise that gradual and incremental development were the main characteristics of international expansion. Organisations, they suggested, could best reduce their risk level by adopting an evolutionary approach.
The internationalisation process model or Uppsala model was based on four case studies of Swedish companies with operations in more than 20 countries:
• Volvo – automobile and truck manufacturer
• Sandvik – industrial tool manufacturer
• Atlas Copco – compressor and industrial tool manufacturer
• Facit – electro-mechanical office equipment manufacturer.
Johanson and Vahlne found that these firms had built their presence in foreign markets incrementally — “they often develop their international operations in small steps, rather than by making large foreign production investments at single point in time using two variables:
1. level of commitment in a particular host country
2. level of market knowledge to steer the direction of the geographic expansion”
(as quoted in Elgar, Edward (2003). Learning in the Internationalisation Process of Firms)
5.3: Market Commitment
Johanson and Vahlne distinguished four sequential steps where each consecutive step meant an increased resource commitment to a particular market. Their ‘establishment chain’ consisted of:
1. irregular export activities
2. export via independent sales representative
3. establishment of overseas sales subsidiary
4. establishment of foreign manufacturing subsidiaries.
The more resources a firm committed to a market, the greater their gain in exposure and experience and the trust to commit more resources. In essence the whole process has an in built risk aversive element. Johanson and Vahlne demonstrated that a firm will enter a new market at the lowest resource commitment possible and begin to expand from this level following the establishment chain. “The choice of entry mode is dependent on the degree of opportunity, risk association, the size of the prospective market, and the urgency of expansion. Resource commitment is dependent upon two factors:
1. amount of resources committed
2. degree of commitment.”
(as quoted in Elgar, Edward (2003). Learning in the Internationalisation Process of Firms)
5.4: Market Knowledge
Organisations enter those markets that they know best and only move into more distant/unfamiliar markets after feeling that they have gained sufficient knowledge and understanding of that particular market. Johanson and Vahlne introduced ‘psychic distance’ to measure a market’s foreignness which they defined as “factors preventing or disturbing the flows of information between firm and market,” including variables such as language, culture, political, legal and educational systems.” The order of the different stages in the internationalisation process is directly related to the relative psychic distance between home country and host country: the ‘further’ countries are in terms of psychic distance, the fewer resources firms are willing to commit to those particular markets.
In 1990, Johanson and Vahlne reviewed their earlier findings (full article can be viewed at here) and listed three situations when firms do not need to follow the incremental steps of the establishment chain:
1. firms with access to a large pool of resources are less susceptible to the consequences of (bad) commitments and able to step up their internationalisation effort at a faster rate;
2. relevant market knowledge can be acquired in ways other than through direct experience when market conditions are stable and homogeneous;
3. once a firm has gained experience from a market with similar conditions, it may be possible to generalise this experience and apply it to the new target market.
As one would expect, there are critics of this model and even the reviewed elements. Leonidou and Katsikeas question the dynamic progression elements and suggest that there is no empirical evidence to support this. Other theorists such as Reuber & Fisher 1997 suggest that one of the key elements is quite simply management “desire”.
There are of course other factors which will influence the decision to internationalise a business and how to achieve this. Existing networks or (so called) immigrant networks (first generation immigrants who have ties to both settled country and country of birth) will both play a large part in the decision. Government help, assistance or in some cases hindrance will also play a part and is discussed in greater detail in unit six.
Please complete the end of unit activities and consider reading all of the additional readings in the further resources section.
5.6: Further Resources
There is a wealth of reading and academic video film clips available on this topic and those listed below are simply a limited selection. Consider the ones in bold to be (particularly) recommended
Enterprise: Entrepreneurship and Innovation (available online via dawsonera, UDOL library) Robin Lowe And Sue Marriott. Pages: 471 Publisher: Taylor & Francis Ltd Published: Jun 14, 2006 Chapter 8 – Multicultural Entrepreneurship starts page 242
Johnson, Jeffrey E. (2004). “Factors Influencing the Early Internationalization of High Technology Start-ups: US and UK Evidence,” Journal of International Entrepreneurship, 2 (1), pp.139-154.
Baughn,C Neupert,K “Facilitating Entrepreneurial Start-ups” Journal of International Entrepreneurship September 2003, Volume 1, Issue 3, pp 313-330
Pettersen, I.B, Tobiassen,A.E, “Are born globals really born globals? The case of academic spin-offs with long development periods” Journal of International Entrepreneurship, June 2012, Volume 10, Issue 2, pp 117-141
Crick, D. “The International Entrepreneurial Decision of UK SMEs to Discontinue Overseas Activities: A Research Note Reporting Practices Within the Clothing Industry Eighteen Months on” Journal of International Entrepreneurship December 2003, Volume 1, Issue 4, pp 405-413
6: Unit 5: Innovation & Enterprise
An innovation strategy is a vital part of any organisation’s corporate strategy!
Firm-specific knowledge is an essential feature of competitive success; without it you are just the same as everyone else. It is what we know (about our products, services and processes) that can differentiate us from our rivals.
Corporate strategy should therefore include an innovation strategy, the purpose of which is deliberately to accumulate and exploit such firm-specific knowledge. As with all things to do with organisational success over the long term we need a strategy, first a corporate strategy and underpinning that, an innovation strategy.
Our innovation strategy needs to show how we are going to bring new ideas into the organisation, how we are going to harness the ideas we can generate internally, how we are going to keep abreast of (preferably get ahead of) an external environment that is complex and ever-changing, with considerable uncertainties about present and future developments in technology and other dimensions of the business environment. It would also need to assign clear lines of responsibility and policies for allocating resource to this new thinking.
How do we create an organisation structure that facilitates and encourages innovation, encourages cross departmental fertilisation, enables learning from our customers and competitors, and facilitates scanning the future horizons to spot trends before others do? Given change and uncertainty, managers should:
• Constantly explore the implications of a range of possible future trends.
• Ensure broad participation, informal channels of communication, debate and scepticism.
• Keep assumptions and conclusions clear and simple; avoid the ‘not-invented-here syndrome’ and the ‘we tried that before and it didn’t work’ association!
There are no magic bullets – innovation is a skill set that organisations need to harness in order to sustain competitive advantage.
Michael Porter’s pioneering 5 Forces Framework for competitive analysis shows that innovation plays a central role in (i) rivalry amongst competing firms, (ii) the potential for new competitive entrants into the industry, (iii) the relative power of suppliers and their customers and (iv)generating substitute products.
It may also be useful to consider whether your organisation does have a specific innovation strategy. Or does it just respond when an idea comes up? How does it know what it may be missing? What would an innovation strategy look like in your organisation? Who would be involved and how would it generate new ideas and convert them into competitive advantage? Clearly if you are not working at present then consider a previous employment or an organisation you may know well.
6.1: Entrepreneurship and New Ventures
Where would we be without the printing press?
According to Tidd and Bessant (2009) inventors and entrepreneurs are often thought of as the main innovation force in an economy. They are certainly an important element in new ideas generation and commercialisation, but not the only one. Innovation can also be generated inside an organisation, in perhaps an under-regarded and under-rewarded way. It’s happening all the time so maybe it is noticed less. Invention and new patents are important, but intrapreneurship is also vital to the longer tern success of organisations.
Firms can innovate on their own or with partners, of course. Strategic alliances for innovation are an important part of many organisations’ long term strategy which will in turn affect their long term internationalisation strategy..
6.2: Starting a New Venture
A firm may establish an internal venture for a number of reasons, primarily to maintain or improve its competitiveness by exploiting existing processes or exploring more attractive product markets (Tidd and Bessant 2009).
Like any new business, a corporate venture requires a clear business plan and strong champion or intrapreneur who must identify the opportunity for a new venture, raise the finance and manage the development and growth of the business.”
According to Tidd and Bessant: “Like any entrepreneur, the intrapreneur must be highly motivated and will demand a high level of autonomy. However, unlike his counterpart, the corporate intrapreneur requires a high degree of political and social skill. This is because the corporate entrepreneur has the advantage of the financial, technical and marketing resources of the parent firm, but must deal with internal politics and bureaucracy.”
Options for expansion will also include…
Success of alliances
Only around half of all alliances are successful:
• Strong partners – 67% succeed (vs. 40%)
• Equal ownership – 60% succeed (vs. 31%)
• Minimal overlap – 62% succeed (vs. 25%)
• Flexible – 79% (vs. 33%)
Common problems with alliances:
• Share hard-earned technical &and market knowledge
• Compromise product specification, development &and strategy
• Danger of leakage of knowledge to third parties
Factors which improve success of an alliance:
• Perceived as important by all partners
• Alliance ‘champion’ exists
• Clear plan and& milestones agreed
• Frequent communication between partners
• Contributions and& benefits perceived as fair
• High trust between partners, not contractual
New technology based firms differ from other types of new venture because they feature three types of risk: individual, technological and commercial (Tidd and Bessant 2009).
The technological risk associated with a new venture will depend on the maturity of the technology and resources required to translate the technology into a viable business.
For example, biotechnology is relatively immature, and requires considerable time and financial resources before commercial technologies, services or products are achieved (if at all).
In contrast, software development is now a relatively mature fileld, and requires less time and resources to yield a commercial product.
The criteria used by venture capitalists to evaluate business plans differ by region, but a number of factors are considered to be critical by all: the entrepreneur is familiar with the market, able to evaluate risk and capable of sustained effort; a prototype exists and market acceptance has been demonstrated; the target market is high-growth; and expect high financial return within the first ten years.
(Tidd and Bessant 2009)
6.4: Further Resources
There are a couple of interesting Exercises in the Chapter 10 section of the Managing Innovation text book.
1) Partner Search
2) Acquiring Technological Knowledge
Also, look at the interesting case study Cerulean
Listen as well to the Chapter 10 audio: David Hall on Entrepreneurship
7: Unit 6: Influence of Government Policy on International Entrepreneurship
The relative importance of the SME sector in most countries has increased significantly over the past 40 years. If we consider the UK (your home country may have different definitions) as an example, Ritchie and Brindley (2005) highlight one major reason for this, “in the UK, small- to medium-size enterprises (SME’s) have been seen as the catalyst for economic transformation at a local, regional and national level. Government supported economic development strategies have been targeted at business start-up schemes, return to work (or perhaps more specifically change to self-employment) and enterprise development initiatives.”
Mazzraol, Volery, Doss and Thein (1999) identify a significant factor as to why the SME sector has become “the catalyst for economic transformation”, “While larger corporations have instituted “downsizing” or “rightsizing” programs, job creation and economic growth have become the domain new ventures and the entrepreneurs who create them.” Thus the SME sector is performing an important macro-economic function, it is a source of replacement jobs for those lost from much larger, more geographically mobile companies.
Data from the UK Government Small Business Service for 2010 (Business population estimates for the UK and regions 2010) confirms the importance of this sector with SME’s making up more than 99.9% of all firms and 48.6% of the turnover of firms in the private sector and yet only showing indicative exporting of 21% (SME Business Barometer June 2013).
It should be recognised that this phenomena is not restricted to the UK. Other high cost EU countries show similar patterns and indeed the SME sector is being addressed at an EU level. However even out with high cost counties the SME sector is important and in many countries has been recognised as of critical importance to national economies.
If the importance of SME’s is accepted, what constitutes an SME needs to be examined thus an objective and accurate description is required so that government support can be targeted appropriately. On the surface defining what constitutes an SME should be simple but it is considered by many to be problematic. Storey (1994) warns, “There is no single, uniformly acceptable, definition of a small firms” he expands on this “Definitions relate to ‘objective’ measures of size such as number of employees, sales turnover, profitability, net worth, etc”.
The UK Small Business Service (op. cit) concurs with Storey (op. cit), “There is no single definition of a business, or of a firm or enterprise, which are often used to mean the same thing. Generally it means a legal unit, person or group of people producing goods or services under their own control and with their own legal identity. A branch or office of a larger organisation is not in itself a business.” However in spite of the reservations of many writers on the subject and the SBS’s admission it is on grounds of objective data that governments, at least, have defined the SME sector. It should be noted that European Union definitions actually extend below the small enterprise and have included the micro category.
The EU definitions suggest a micro enterprise being one which has less than 10 employees, small being 10 to 99 employees and medium between 100 and 499 employees. Section 249 of the (UK) Companies Act of 1985 concurs with EU definitions on numbers of employees but adds two financial clarifications as follows. A small firm cannot have a turnover of more the £2.8 million or a balance sheet total of more the £1.4 million. A medium sized firm cannot have turnover of more the £11.2million or a balance sheet total of more than £5.6 million.
Some authors have suggested that using absolute size is misleading and size must be compared to the industry sector in which it operates i.e. a small company with a large share of the market in a small sector may not display typical characteristics of a small firm. Likewise a small firm with a small market share of a very large market may have a significant turnover and again not display typical characteristic of a small firm. Brooksbank (2000) summarises this ambiguity, “It is recognised that size is relative to sector…Similarly, it is recognised that it may be more appropriate to define size by the number of employees in some sectors but more appropriate to use turnover in others”.
The internationalisation of SMEs is important to governments because they can generate significant exports (e.g. in 2010 32% of all export from the USA were from SMEs) and there is an expectation that the overall level of SME globalisation to will continue to increase. This is due in large measure to the trade agreements, the growing affluence of the BRIC nations and the increasing globalisation of industry in the services sector. This in turn is linked to the information highways that are emerging in the context e-commerce. Thus governments are increasingly pursuing initiatives to improve the competitiveness of SMEs.
7.2: Further Resources
There is a wealth of reading and academic video film clips available on this topic and those listed below are simply a selection. Consider the ones in bold to be recommended.
Wickham, P.A. (2006) Strategic Entrepreneurship 4th edition, [Available On-line via dawsonera, UDOL Library], Financial Times Prentice Hall. Chapter 7 and 20
Phan, Phillip et al (2008) Entrepreneurship in emerging regions around the world: theory, evidence, and implications Edward Elgar Publishing Ltd. Part 2 (Chapters 4 & 5) [Available Online via dawsonera, UDOL Library]
Yurong Chen, Liuying Xu & Weixing Wang (2009), Innovation Fund: a Booster of Science and Technology SME Development, International Journal of Business and Management Vol 4 No 4.
Ribeiro-Soriano, Domingo, and Miguel-Ángel Galindo-Martín. “Government Policies To Support Entrepreneurship.” Entrepreneurship & Regional Development 24.9/10 (2012): 861-864.
Tambunan, T. (2008) ‘SME development, economic growth, and government intervention in a developing country: the Indonesian story’, Journal of International Entrepreneurship, 6, pp.147-167
Valiere, D. & Peterson, R. (2009) ‘Entrepreneurship and economic growth: evidence from emerging and developed countries’, Entrepreneurship and Regional Development, 21 (Nos. 5-6), pp.459-480,
Crick, D 1997, ‘U.K. smes’ awareness, use, and perceptions of selected government export assistance programs: an investigation into the effect of the internationalization process’, International Trade Journal, 11, 1, p. 135,
Fliess, B, & Busquets, C 2006, ‘The role of trade barriers in s.m.e. internationalisation’, OECD Papers, 6, 13, pp. 1-19,
Keepeek (chapters 1 and 2 – recommended)
UKTI Global Entrepreneurs Programme
Making it easier to set up and grow a business
8: Unit 7: Corporate Entrepreneurship
The aim of this unit is to study the concept of corporate entrepreneurship or intrapreneneurship and builds on unit 5 which looked at innovation.
The concept of corporate entrepreneurship or intrapreneurship refers to the development of new ideas and opportunities within large or established businesses, directly leading to the improvement of organizational profitability and an enhancement of competitive position or the strategic renewal of an existing business. Innovation is central to corporate entrepreneurship – the two are inseparably linked and it is innovation that drives calculated and beneficial risk-taking (such as that exhibited in the Uppsala model outlined in unit 5). This unit will consider three main areas:
• Compare and contrast corporate entrepreneurship against “traditional” SME entrepreneurship.
• Evaluate the influence of corporate entrepreneurship at a strategic level
• Review emerging issues in corporate entrepreneurship
This unit should take you 1 week to study. You will encounter technologies such as discussion forums and e-resources from the library.
Firstly, it is perhaps worth noting that the terms ‘corporate venturing’, ‘corporate entrepreneurship’, and ‘intrapreneurship’ are essentially the same and can be used interchangeably though, for consistency we will use intrapreneurship here. This concept suggests that larger organisations, like individuals, can behave in an entrepreneurial manner. However the ways in which this entrepreneurial behaviour is encouraged or even tolerated varies from organisation to organisation. In some organisations, there is an intrapreneurial culture that drives the organisation forwards whilst in others intrapreneurship is limited to specific new ventures that are allowed to flourish under the “protection” of the corporate parent.
There are many reasons for larger organisations to engage in entrepreneurial activities, whether these an overall approach to doing business or whether as an approach to supporting specific intrapreneurial activities in new product development or in new ventures. A significant driver of this is globalisation which has caused organisations to increase their pace of innovation in order to remain current and avoid falling behind with entrepreneurial thinking seen as a central to meeting these demands.
It has been argued that key generating entrepreneurial behaviour in an existing organisation is the establishment an entrepreneurial culture and the support of entrepreneurially-minded leaders and ideal culture would support activities such as:
• Encouragement of new ideas
• Experimentation with new approaches
• Failures tolerated
• Long term perspective
• Sponsors and champions available for teams and individuals
• Active support and interest of top management
• Resources made available and accessible to support innovation
• The prevalence of multidisciplinary teams
• Appropriate reward system
However that’s a list that isn’t easy to achieve and while it is easy to state that failure should be tolerated (to encourage employees to try new things and to innovate), being “attached” to a failure is in direct opposition to the career and promotional system of most organisations. Similarly, while one would hope that an organisation does not prohibit new ideas, in real life organisations can be very political and there can be resistance to change because of this. For example, how would you expect the employees of an organisation to react if an intrapreneurship plan was floated that proposed to replace the firm’s current line of products with a new, improved, and more technologically sophisticated line of products? Employees whose careers were fully invested in the current line of products might do everything they can to stop the new idea to protect their jobs and careers. This is why establishing an entrepreneurial culture is so critical. An exception(al) organisation which does however encompass these ideals is the Mondragon Corporation whose business ethics/ideals and indeed, ideas, are a real eye opener to western based business. Conventionally an organisational culture that encourages, rewards, and protects entrepreneurial thinking and the introduction of new ideas is less likely to tolerate political machinations. Leadership is key and to encourage intrapreneurship leaders must understand the environment, be flexible, encourage teamwork and open discussion, a collation builder and finally, be persistent.
The key difference between entrepreneurship and intrapreneurship is the context in which the entrepreneurial act takes place. Entrepreneurs innovate in a new venture setting, while intrapreneurs innovate within the context of (and on behalf of) an existing organisation. The difference in context generates a set of issues that differentiates the experiences of successful entrepreneurs from those of successful intrapreneurs. Entrepreneurs generally follow the entrepreneurial process we have studied i.e.
(1) identifying and evaluating an opportunity
(2) developing a business plan
(3) determining (and obtaining) the required resources, and
(4) managing the resulting enterprise.
There are many challenges and rewards involved with this process, including assembling a team, raising money, developing a business model, building an organisation from scratch, finding customers, and managing a growing organisation. Intrapreneurs follow a similar process initially, in terms of identifying and evaluating an opportunity. But they face a different set of challenges in bringing the opportunity to fruition as the intraprenuer must navigate both a corporate hierarchy and corporate politics to champion and win support for their new product or service idea. This process normally includes explaining the strategic relationship between the new idea and the organisation’s existing business, what the metrics will be for evaluating the new idea’s success or failure, what the principal risks involved in bringing the new idea to market will be and how the risks will be minimised and managed. Being an intraprenuer is neither easier nor harder than being an entrepreneur; it simply entails a different set of challenges and rewards. However there are two major differences between being an entrepreneur and intraprenuer which have both financial and lifestyle implications. Firstly, many people become entrepreneurs to be their own bosses and to pursue their own ideas and it’s not uncommon for people to leave jobs and strike out on their own because they couldn’t get their bosses to listen to their ideas. In contrast, intrapreneurs, regardless of how much autonomy they are given, are still part of an existing organisation and are accountable to a boss at some level. Second, entrepreneurs (and their investors) reap the financial benefits and losses of the businesses they create. There is theoretically no limit to their income potential. At the same time, there is no safety net below them. Conversely, intrapreneurs create businesses on behalf of their employers. Even if they have a profit sharing plan there is generally a limit to their income potential. The new business belongs to the firm. Of course the trade-off is that, if their intrapreneurial venture fails, they may simply be assigned to another role in the firm not face potential financial hardship.
8.3: Entrepreneurship at a Strategic Level
A concept related to intrapreneurship is strategic entrepreneurship. The idea is that strategic management and entrepreneurship are mutually supportive concepts. Both focus on how firms adapt to their external environments and create change (or renewal). The basic idea behind strategic management is to create competitive advantage, while the basic idea behind entrepreneurship is to identify and exploit opportunities. If an organisation can capture both, it results in a powerful combination. Wealth is ultimately produced when an organisation can combine effective opportunity-seeking behaviour with the ability to establish and sustain a competitive advantage.
The question of course is, how does all of this fit in with International entrepreneurship? The simple answer is that the ideas for entrepreneurship hold firm whether it is for a domestic market or an international one. As with all theories there are subtle differences in the practical elements but overall, in order to be successful internationally, you must be able to demonstrate the skills and abilities outlined in the previous two pages.
8.5: Further Resources
There is a wealth of reading and other academic materials (such as video film clips) available on this topic and those listed below are simply a limited selection. Consider the ones in bold to be (particularly) recommended
Wickham, P.A. (2006) Strategic Entrepreneurship 4th edition, [On-line], Financial Times Prentice Hall. Chapters 13, 14 and 15
Roberts, EB 1980, ‘New ventures for corporate growth’, Harvard Business Review, 58, 4, pp. 134-14
Zaltman, G, Zaltman, L, Sturgess, D, Lee, A, Fujikawa, Y, & Carbone, L 2008, ‘The Sure Thing That Flopped’, Harvard Business Review, 86, 7/8, pp. 29-37
Ankeny, J 2012, ‘The GOOD Sir Richard. (cover story)’, Entrepreneur, 40, 6, pp. 30-38
Covin, J, & Miles, M 2007, ‘Strategic Use of Corporate Venturing’, Entrepreneurship: Theory & Practice, 31, 2, pp. 183-207
Verbeke, A, Chrisman, J, & Yuan, W 2007, ‘A Note on Strategic Renewal and Corporate Venturing in the Subsidiaries of Multinational Enterprises’, Entrepreneurship: Theory & Practice, 31, 4, pp. 585-600
Miles, M, & Covin, J 2002, ‘Exploring the Practice of Corporate Venturing: Some Common Forms and Their Organizational Implications’, Entrepreneurship: Theory & Practice, 26, 3, pp. 21-40
Intrapreneurship – An international study
Intrapreneurship: Construct Refinement and Cross Cultural Validation
9: Unit 8: Contemporary Issues
The aim of this unit is to give a brief overview of issues which are currently under discussion within this topic area. Many of these have already been touched upon in the previous seven units. However, it is worth revisiting or developing some of the main elements. Please feel free to comment on any of these within the discussion area.
This unit should take 1 week to study. We will be using technologies such as discussion forums and e-resources from the library.